Prophetic Intelligence Briefings
World Awash in Cash… and Debt · March 22, 2012
“Never before have the world’s central banks sent so much money sloshing through the global financial system. From slashing interest rates and buying government debt to dangling cheap loans to banks and taking on their risky assets, central banks have taken extraordinary steps since the 2008 financial crisis to nurse the international banking system back to health.”
The U.S. Federal Reserve and the central banks of Britain, Japan and 17 Eurozone countries “pumped out so much money that their balance sheets have reached a combined $8.8 trillion. That’s a record, by far.”
While the cash infusion has lowered borrowing costs and increased confidence of the markets in banks and governments, it also has raised the specter of severely damaging inflation in the future. Already prices for oil, food, gold and other commodities are rising quickly. And the stock markets have been bid up to dangerous heights.
Banks are also taking on increasingly risky investments triggering a warning from Germany’s central bank president, Jens Weidmann. The balance sheets of the central banks have soared since the financial crisis exploded. “This is the first time in history that we have seen anything like this amount of liquidity from central banks flooding the system,” said David Jones, head of DMJ Advisors and the author of several books on the Fed.
There is no sign of a reversal in the foreseeable future. But the central banks will have a hard time unloading the debt without jolting the financial system.
“Central banks around the world are making a bet that they will be able to handle inflation down the road,” said Diane Swonk, chief economist at Mesirow Financial. It’s a major gamble and the ramifications, if they turn out to be wrong, would be staggering. If they’re right, they’ll be revered as economic heroes for all time.
“The very means that is now so sparingly invested in the cause of God, and that is selfishly retained, will in a little while be cast with all idols to the moles and to the bats. Money will soon depreciate in value very suddenly when the reality of eternal scenes opens to the senses of man.”
Evangelism, page 62
Central banks’ $9 trillion is global economic lifeline
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